Fund managers have chosen to brave the volatility and stay invested in equities ahead of election results on Friday, instead of sitting on cash like they did in 2009.

“Fund managers seemed to have learnt their lessons from 2009, when many of them were sitting on huge piles of cash and missed the rally that followed the election results,” said Sameer Hassija, senior investment analyst, Morningstar India.

In the first few months of 2009, fund managers were sitting on cash levels as high as 10-18%. The Sensex rallied about 30% a month after the election results were declared that year. Industry estimates peg current cash levels to be as low as 2-5%.

“The level of confidence among fund managers is a lot higher this time around and several are expecting a stable government at the Centre,” said Pankaj Murarka, head, equities, Axis MF. “Equity as an asset class has underperformed in the last 3-4 years and those focussed on the long term sense things to improve from here on despite possible short-term volatility.”

The benchmark BSE Sensex has now risen by more than 12% YTD and is up by more than 25% since September last year. “Considering the way the market has rallied in the last few sessions, it seems like a wise decision to stay invested,” said Hassija.

All exit polls have indicated that the BJP-led NDA will emerge victorious in the election by winning an estimated 249-289 seats. Overseas investors, in particular, have become increasingly confident that the elections would throw up a stable government.

Many foreign brokerages have revised their year-end targets for the benchmark indices, hoping a stable government will kickstart reforms that will lead to a turn in the economic cycle. For instance, Bank of America Merrill Lynch (BofA ML) raised its year-end target for Sensex to 25,500 from 23,500, while Nomura Capital (India) upped its year-end Sensex target to 27,200 from 24,700.

Market participants also said the recent rally is sparking a renewed interest in equities, especially among high net worth individuals (HNIs). “Many of the smarter investors have taken a call that a new government will come and the economy will improve. These are the guys that have come back in a serious way,” said G Pradeepkumar, CEO, Union KBC AMC.

April saw folio addition of 3.85 lakh in the equity MF segment, the first month of folio creation in nearly four years. The month also saw modest inflows of over R200 crore in equity schemes.